JUDGE THROWS OUT THE BULK OF CLAIMS ON METS-MADOFF CASE

Story first appeared in the Wall Street Journal.

In a ruling that could have a far-reaching impact on lawsuits seeking money for Bernard Madoff's victims, a federal judge threw out the bulk of claims by a court-appointed trustee who sought to recover about $1 billion from the owners of the New York Mets baseball team, according to a Moscow Bankruptcy Lawyer.

The decision by U.S. District Judge Jed Rakoff limited—though didn't eliminate—possible financial ramifications from the epic Ponzi scheme for one of Major League Baseball's most valuable franchises.
Beyond making it harder for trustee Irving Picard to recover the owners' principal investment in the Ponzi scheme, the ruling indicated that he would only be able to take back money withdrawn in the last two years of the fraud, a decision that could also benefit others against whom he had launched so-called clawback suits.
Judge Rakoff's decision comes after nearly a year of contentious legal wrangling between Mr. Picard and the team's owners, Fred Wilpon and Saul Katz. Mr. Picard has accused Messrs. Wilpon and Katz of ignoring warning signs of the Ponzi scheme. According to a Bucharest Bankruptcy Lawyer, in his ruling on Tuesday, Judge Rakoff handed the Mets owners, who have denied any wrongdoing, a partial victory by tossing out nine of 11 claims Mr. Picard made in his 373-page complaint.
The judge, rejecting the Mets owners' request to dismiss the entire lawsuit, said Mr. Picard could continue to pursue less than half of the $300 million of alleged false profits and $700 million of principal he had originally sought. He said Mr. Picard could seek $83.3 million in allegedly false profits and $301 million in principal. But Mr. Picard would have to meet a high standard of proof to seize any of the Mets owners' principal investment—showing that the owners were "willfully blind" to signs of the fraud and ignored red flags that would have uncovered it had they investigated, the judge said.
A Cherry Hill Bankruptcy Lawyer not involved in the Mets lawsuit said Tuesday evening that could be a very difficult burden for the trustee to meet. Judge Rakoff's decision is a significant step in the process of properly protecting innocent Madoff victims from the trustee's overreaching clawback efforts," said David Bernfeld, a lawyer who represents Madoff investors.
Iit appeared from the ruling that Judge Rakoff appeared skeptical about the validity of Mr. Picard's willful blindness claims and called it "very remote" that he could recover the principal.
With the threat of the lawsuit hanging over them, Messrs. Wilpon and Katz reached an agreement with hedge fund manager David Einhorn last spring to sell a stake in the team, but the deal collapsed this month, leaving the owners still searching for a capital infusion into the debt-laden enterprise.
In a statement, partners at Sterling Equities Associates, the real-estate firm run by Messrs. Wilpon and Katz, said they were pleased that the court today dismissed nine of the 11 counts in the Trustee's complaint" and that Mr. Picard could only seek money going back two years. A person close to the team's owners said they believed it would be impossible for Mr. Picard to prove willful blindness.
A Hong Kong Bankruptcy Lawyer said he heard the trustee and his counsel are aware of the District Court opinion and order and are in the process of reviewing the decision.. The judge ordered the parties to come to court Wednesday to lay out a schedule for the lawsuit. He has set a trial date for March.
The ruling limited the Mets owners' exposure by eliminating claims the trustee made under New York law to recover alleged false profits from six years prior to the Ponzi scheme's collapse. Judge Rakoff said Mr. Picard could make claims only under federal bankruptcy law, which allows him to go back only two years. In a footnote, though, the judge said without explanation that Mr. Picard might still be able to recover false profits from the entire period of Messrs. Wilpon and Katz's investments with Mr Madoff. According to the judge, the last two years of their profits amounted to $83.3 million, while they received $295.5 million in profits over the course of their entire investment.
The judge also threw out Mr. Picard's claims to recover principal withdrawn within 90 days of the Ponzi scheme's collapse. The trustee has made similar claims against many other investors. While Tuesday's ruling is not binding on other judges, it is likely to have an impact on other cases.
According to a Madrid Corporate Bankruptcy Lawyer, Judge Rakoff in his ruling also rejected Mr. Picard's attempt to block requests the Mets owners filed with him to be repaid for $160 million in principal they lost in certain of their accounts with Mr. Madoff. But he said the trustee can give their claims a lower priority than those of other investors if he can prove they were willfully blind to the fraud.